The state Legislature on Wednesday began a sharp debate about a plan to close California's projected $24 billion deficit but showed few signs of defusing the crisis quickly.
The Democratic budget plan being debated in the Assembly and Senate had little chance of passing because it appeared to have insufficient support from Republicans. Gov. Arnold Schwarzenegger has also criticized the Democrats' plan to raise taxes on oil drilling, tobacco products and vehicle licensing.
As lawmakers were debating the budget crisis, state Controller John Chiang said he would begin issuing IOUs to thousands of state contractors as soon as next week. He said that without a balanced budget, the state would be $2.8 billion in the red at the end of July, the first month of its new fiscal year.
The IOUs would mean no immediate funding to local governments for social services and private contractors that provide an array of programs for the poor, elderly and frail.
"Next Wednesday, we start a fiscal year with a massively unbalanced spending plan and a cash shortfall not seen since the Great Depression," Chiang said in a statement. "Unfortunately, the state's inability to balance its checkbook will now mean shortchanging taxpayers, local governments and small businesses."
Chiang and state Treasurer Bill Lockyer have urged lawmakers to act before the start of the new fiscal year on Wednesday. Lockyer wants the ability to get a short-term loan to cover California's cash needs through the first half of its fiscal year but cannot do so without a balanced budget in place.
Without that loan, the difference between California's tax revenue and the spending obligations already in place will begin to widen. Without a solution from the Legislature, the gap will grow to $6.5 billion in September and widen to double digits afterward, Chiang said.
In a midyear fix last February, lawmakers approved a budget for the coming fiscal year but it was out of balance just weeks after Schwarzenegger signed it.
The pressure on lawmakers to reach a deal as the state's cash crisis intensifies was apparent in the 40-member Senate, which started the budget debate.
The Senate's leader, President Pro Tem Darrell Steinberg, said Democrats would reject Schwarzenegger's proposals to eliminate California's main welfare program, a program that provides health care to nearly 1 million low-income children and college grants.
"I want to make our position perfectly clear: We will not, we will not eliminate the Healthy Families, we will not eliminate CalWorks, we will not eliminate in-home care," Steinberg, a Sacramento Democrat, said as he addressed his Republican colleagues. "If that is the price for earning, garnering your votes for this budget, forget about it. It's not going to happen."
